Inside
SAUDI ARABIA
FINANCIAL TIMES SPECIAL REPORT | Wednesday September 23 2009
Big and powerful but slow to modernise
Andrew England and
Abeer Allam analyse
the problems faced by
rulers of the world’s
top oil producer
W
hile preparing to
leave Saudi Arabia
to attend the G20
summit in London
this year, King Abdullah made
what was arguably his most
important decision since taking
on the mantle of leader of the
world’s top oil producer.
The octogenarian monarch
was expected to be out of the
country for some time while his
deputy, Prince Sultan, the
crown prince, was recovering
from surgery in New York amid
rising speculation about his
health. With no delegated per-
son to fill the leadership void,
King Abdullah appointed Prince
Naif, a half brother, as second
deputy prime minister. The
move made the veteran interior
minister in effect second in line
to the throne and, crucially,
clarified who will be running
the regional financial and politi-
cal heavyweight for the foresee-
able future.
In some quarters, the decision
was welcomed – it ended several
years of uncertainty about the
sensitive succession issue in a
nation ruled by men aged in
their 70s and 80s. Prince Naif is
regarded by some as a no-
nonsense character who led the
battle against home-grown al-
Qaeda militants and who would
provide a steady hand on the
helm.
To others, however, it dashed
any hopes of a new generation
being elevated to the corridors
of power, and frustrated those
seeking even limited political
reforms in the absolute monar-
chy.
Prince Naif, 74, is considered a
conservative close to the reli-
gious establishment that is
often blamed for resisting
important reforms, particularly
in education and the judiciary,
and therefore perpetuating reli-
gious intolerance.
The appointment came as the
kingdom faces social difficulties
that have been building up
since the 1970s. The fruits of the
recent oil boom have provided it
with an opportunity to address
some of its ailments and to mod-
ernise – albeit in the traditional
ultra-conservative Saudi style.
The direction the kingdom
takes is critical to the region
and beyond. Since regaining its
confidence after intense critical
scrutiny in the wake of the Sep-
tember 11, 2001, attacks on the
US, the kingdom has been reas-
serting itself on the diplomatic
stage and is considered by
Washington to be an important
force in the Middle East, as well
as Pakistan and Afghanistan,
given its financial clout and sta-
tus as a leader of the Muslim
world.
It also has an unrivalled role
in global oil markets, endowed
as it is with a quarter of the
world’s proven oil reserves and
a recently expanded production
capacity of 12.5m barrels a day –
enough to cover 15 per cent of
today’s demand.
Yet for all its resource wealth,
Saudi Arabia remains one of the
poorest countries of the Gulf in
per capita income terms, with a
huge young population and con-
cerns about a shrinking middle
class.
Inside this issue
The economy A relatively
optimistic outlook has
been severely dented by a
big business feud, writes
Andrew England Page 2
Oil This year has been marked
The rise in oil prices until the
second half of 2008 enabled the
kingdom to whittle down its
debt from about 100 per cent of
gross domestic product to less
than 20 per cent, while its for-
eign assets passed $500bn last
year.
The oil-dependent economy,
which stagnated throughout
much of the 1980s and 1990s,
had been achieving healthy
growth and King Abdullah,
deemed a relative progressive in
Saudi terms, is seen as a leader
The concern is that
without social and
economic reforms,
the pool of idle,
disaffected youth
will grow
who could inch the kingdom
into the 21st century.
The country has not, however,
been immune to the global crisis
and the economy is forecast to
contract by about 1 per cent this
year compared with growth of
4.5 per cent in 2008, mainly
because of the sharp decline in
crude prices and cuts in produc-
tion, with hydrocarbons
accounting for about half of
nominal gross domestic product.
It suffered a further setback
by two impressive achievements,
says Carola Hoyos Page 2
Diplomacy The regional political
and financial heavyweight has
trouble following up initiatives
Page 3
Capital Markets
Robin Wigglesworth on efforts
to stamp out sharp practices
Page 4
Education For the very young,
the focus remains heavily on
religious studies, writes
Abeer Allam Page 5
Women’s place in
society remains
deeply contentious,
writes Heba Saleh
Page 5
www.ft.com/saudi­arabia­2009
when it emerged that two prom-
inent Saudi businesses – Saad
Group and Ahmad Hamad Algo-
saibi & Brothers – were strug-
gling with financial difficulties
and owed scores of banks about
$20bn. The two are locked in a
rare public battle that has tar-
nished the kingdom’s image as
the feud has spread to interna-
tional courts.
The saga – which surfaced at
the end of May – has caused
already cautious Saudi banks to
tighten lending to the private
sector and delayed any recov-
ery, economists say.
Still, analysts remain positive
about the mid-term economic
outlook. Government spending
is the main driver of economic
activity and, significantly, the
government posted an expan-
sionary budget last December to
stimulate growth through the
slowdown.
Credited with managing its
funds prudently when the petro-
dollars flowed in, the govern-
ment has also pledged to spend
$400bn on infrastructure and
hydrocarbons investments over
five years.
It cannot afford to stand still:
many of the domestic problems
and concerns that have plagued
the kingdom for decades persist,
despite the state’s renewed
financial prowess.
It is estimated that more than
60 per cent of the 24m popula-
tion are aged below 25, while
official unemployment remains
at about 10 per cent. The trickle-
down effect from the boom has
also been slow, while inflation
soared to record highs last year,
hitting ordinary Saudis strug-
gling with food and rent rises.
“On the surface the economy
looks very favourable, but
important reforms need to con-
tinue. The social issues require
continuous attention – educa-
tion is still a big issue that
needs further tackling, privati-
sation is still pending as well as
creating more jobs for Saudis,”
says John Sfakianakis, chief
economist at Banque Saudi
Continued on Page 2 Testing time: about 60 per cent of the population are under 25 and education reform is slow Reuters
2 ★ FINANCIAL TIMES WEDNESDAY SEPTEMBER 23 2009

Saudi Arabia

Conservatism and an aversion to lending sprees

BANKING
Banks are in better
shape than most,
writes Robin
Wigglesworth
Saudi Arabia’s banks are
known for their conserva-
tism, but an aversion to
lending sprees has roundly
paid off over the past year.
After a stock market crash
in 2006, the kingdom’s
banks entered the financial
crisis with little leverage,
modest real estate exposure
and healthy balance sheets.
Nor had relatively insu-
lar Saudi banks been active
borrowers on international
money markets, and a reli-
ance on deposits has
shielded them from the
liquidity problems that
have plagued other Gulf
banks.
Write-downs on invest-
ment portfolios, though
painful, have largely been
shrugged off, and overall
profits declined only 14.2
per cent last year.
However, while the credit
crunch has only dented the
profits of Saudi banks, this
summer saw a home-grown
problem emerge to cloud
the outlook.
Two big family-owned
conglomerates, the Saad
Group and Ahmad Hamad
Algosaibi & Brothers Co
(AHAB), have defaulted on
their debts, sending shock-
waves across the region.
Both are locked in fierce
legal disputes with credi-
tors and each other.
The groups could owe
about $20bn to more than
100 local and international
banks, according to people
familiar with the matter,
and Saudi banks are said to
be particularly exposed.
Bankers differ on the
degree of negative impact it
will have, but financial
institutions are well-capital-
ised, and the losses will be
spread out over many
banks.
With an overall balance
sheet of more than $350bn
and annualised net income
of more than $8.6bn, and
given that some assets
should be recoverable from
the two groups, Saudi
banks will be fine, says
Mohamad Hawa, head of
Middle East equity strategy
at Credit Suisse. “It’s not as
dramatic as what is going
on around the world.”
However, the defaults and
the likelihood of a pro-
tracted legal battle to
recover assets, has spooked
both local and international
bankers, and caused finan-
cial institutions to curtail
lending to other companies
and family groups, fearful
of a repeat.
“The Algosaibis were a
blue-chip group, and a lot of
people are saying that if
this could happen to them
it could happen to anyone,”
says a senior investment
banker. “So everyone now
has to be a lot more care-
ful.”
Experts say that about 90
per cent of all businesses in
the Gulf are family-owned,
and banks have often relied
on a borrower’s name and
reputation rather than
credit checks and financial
information, analysts say.
“Name lending doesn’t
hold negative connotations
here: it’s basic banking in
that someone’s word is their
bond, and that’s worth more
than any audited financial
statement can tell you about
a borrower’s willingness, if
not ability, to repay,” says
Hani Kablawi, chairman of
Bank of New York Mellon in
the Middle East.
Credit growth has fallen
from about 35 per cent in
mid-2008 to about 7.7 per
cent in May, according to
Deutsche Bank, the slowest
rate of credit expansion in
the region.
However, bankers expect
that unless further troubles
emerge at other big family-
owned groups, Saudi banks
will be able to shrug off any
losses from the Saad and
AHAB groups. Non-per-
forming loans are expected
to rise this year, but not to
the extent of some other
Gulf countries.
Only about 8 per cent of
the total balance sheet of
banks are directly exposed
to real estate, and the loans-
to-deposit ratio stands at 81
per cent overall, providing
an ample liquidity cushion.
This has been reflected in
the relatively sanguine
approach to crisis manage-
ment by the Saudi Arabian
Monetary Agency (Sana),
the central bank.
It has cut its interest
rates along with the US
Federal Reserve, because of
the riyal’s peg to the dollar,
and lowered the reserve
requirement for banks for
the first time since 1980, but
has not followed more dra-
matic measures taken else-
where in the region.
The longer-term outlook
is even rosier, bankers and
analysts predict.
Saudi Arabia is one of the
least-penetrated banking
markets in the Gulf.
The government has con-
tinued to step up spending,
despite the downturn in oil
revenues, and the promised
introduction of a new mort-
gage law could open up a
potentially lucrative sector.
Saudi banks are still
reluctant to lend and are
hoarding cash at the central
bank.
However, once concerns
over non-performing loans
wane, and worries over
family groups are dispelled,
the financial sector is
expected to emerge from
the crisis in better shape
than most of its global
peers.

Expansion into SAUDI ARABIA

ISRAEL
IRAQ
Economic summary

Total GDP (SRbn)

2009*
1,540.3
2010*
1,760.3

lead position
JORDAN
EGYPT IRAN
Total GDP ($bn) 410.8 469.4
Al Jawf KUWAIT Real GDP growth (annual % change) -1.0 3.3
GDP per head ($) 22,990 23,160
Tabuk
Inflation (annual % change in CPI) 4.6 4.0
Ha’il
Agricultural output (annual % change) 1.0 1.0
OIL bia has been able to achieve its
second big success of 2009: cor-
Al Wajh Buraydah Industrial production (annual % change) -4.1 2.8
Al Qatif OMAN
Carola Hoyos ralling Opec to cut its produc- Ad Dammam
BAHRAIN Money supply, M1 (annual % change) 9.0 10.0
The
reports on this tion by 4.2m b/d and boosting oil
prices from their low of about
Yanbu’ Unayzah QATAR
Gul f Gu l f
Foreign exchange reserves ($bn) 30.2 34.97
al Bahr Budget balance (% of GDP) -0.3
year’s two big $32 a barrel to about $70, a price EGYPT Medina Hufuf of Oma n 3.0
Current account balance ($bn) 22.9 47.0
achievements level at which the oil industry
can invest in the future, but
Red
Riyadh
UNITED ARAB Merchandise exports ($bn) 178.6 214.9
Sea EMIRATES
that does not stymie economic Merchandise imports ($bn) 86.6 91.8
Most oil producers will no doubt recovery. Mecca SAUDI ARABIA Trade balance ($bn) 92.0 123.1
be happy to see the end of 2009, Ali Naimi, Saudi Arabia’s oil Jedda
At Ta’if * Forecasts
the year prices plummeted, in minister, was clearly pleased
many cases cutting revenues in with the group’s achievements. Main trading partners
Qal’at Exports
half. But for Saudi Arabia, this At its most recent meeting, he Bishah OMAN Share of total trade to world 2007 (%)
LI
year has been marked by two said of the oil price: “We are SUDAN KHA Imports
Al Qunfudhah AL
impressive achievements. The happy where it is and it’s going Khamis RU B
kingdom completed its mam- to be there for a while. We don’t Mushayt
moth goal of expanding its pro- have the slightest worry.” Najran A ra bi a n 17.4
Abha US
duction capacity to 12.5m bar- Indeed Opec decided at the Sea
rels a day, enough to cover 15 meeting to stay the course, ERITREA Jizan YEMEN 12.7
250 km
per cent of demand. keeping production levels
The vast, complex and techni- unchanged but standing ready
cally-challenging project cost to act if prices again slip. Saudi Country information Constitution Japan 15.4
almost $100bn and took five Arabia, Opec’s biggest producer, Area 2.15m sq km Official name al-Saud, acceded to the throne in
years to complete. has cut back the most. This loss Language: Arabic Kingdom of Saudi Arabia August 2005 on the death of King 8.2
It is the single biggest factor in revenue has two silver lin- Fahd bin Abdul-Aziz al-Saud, who
Currency: Saudi Riyal (SR) Legal system
that will help reduce – or at ings. Not only have prices risen, had ruled since 1982. Prince Sultan
Exchange rate* pegged to US$ at rate of $1.00=SR3.75 Based on sharia (Islamic law) and
least delay – the risk that the but the kingdom now holds 90 bin Abdul-Aziz al-Saud became 8.0
the Basic Law (1992); no written China
world could again face a short- per cent of the world’s spare Population (2007) 24.2m crown prince
constitution 9.4
age of oil as it did in the sum- capacity.
mer of 2008 when supply was no This gives Riyadh more power Main provinces and population, 2005 National legislature National government
longer able to keep up with ram- to control prices than it has There is no elected legislature. A Council of Ministers, headed by the
Riyadh (capital) 4,730,000 Asir 1,637,000 king, who holds the post of prime
pant demand and oil prices enjoyed in years. The country Consultative Council was Germany 8.9
raced to $147 a barrel. can use the cushion to bring oil Mecca 5,449,000 Medina 1,379,000 appointed in August 1993, and minister. The Council of Ministers
Prince Turki al-Faisal, Saudi to the market quickly if violence Eastern 3,009,000 Jizar 1,083,000 held its inaugural session in exercises both legislative and
Arabia’s former ambassador to or technical failure suddenly December that year executive powers
S. Korea 10.1
the US and the UK, wrote in a causes the loss of production Sovereign credit rating Political parties
Head of state
recent article for Foreign Policy elsewhere, or it can bring the Standard and Poor’s AA- Moody’s A1 Fitch AA- Political parties are not permitted 0 5 10 15 20
The king, Abdullah bin Abdul-Aziz
magazine: “Following the irra- extra crude oil on gradually as
Source: EIU * 2008 average
tional and unsustainable price economies recover and custom-
ers return.

Business feud damps prospects

The country can use
the cushion to bring oil
to the market quickly
if violence causes lost
production elsewhere
spike of the past few years,
Saudi Arabia undertook invest-
ments to ensure the world
would not be surprised by such
a supply failure again.”
Saudi Arabia’s capacity
In other words, Riyadh’s poli-
cies will have a direct bearing
on how quickly the world comes
out of recession. But the cush-
ion also gives Saudi Arabia a
trump card within Opec.
Each of the other members of
the cartel knows that the king-
dom could at any time open its
taps to full throttle and drive
down prices to regain market
share. No doubt, this would
cause Saudi Arabia to suffer as
well. But because the country
has managed the windfall from
recent high prices better than it
THE ECONOMY contract in 2009 because of the
collapse in oil prices and
Andrew England on reduced production, with oil
the cloud hanging over accounting for about half of
nominal gross domestic product
an otherwise and 90 per cent of export reve-
optimistic outlook nues.
Yet the relatively optimistic
view was severely dented by the
of problem is not all that com-
mon but more common than
just these two groups,” he says.
“The general impact on the
overall economy is that this has
held back the stabilisation of
the recovery. If you think back
to April/May, people were fairly
optimistic. That optimism is
December in a bid to boost the
economy through the slowdown.
It had to forecast its first budget
deficit since 2002, but bankers
and businesses welcomed the
move because government
spending is the critical driver of
economic activity.
Plans to spend $400bn on
for sustainable growth. The
economy in early 2009, with
high oil prices and high infla-
tion, was starting to overheat in
some areas, so I think the pic-
ture for 2010 is very benign,”
says Brad Bourland, chief econ-
omist at Jadwa Investment. He
believes the government will

expansion stands in stark con-
trast to what has happened in
other oil-producing countries
such as Iraq, Nigeria, Venezuela
and Iran. Politics, war and inter-
nal strife have cut their com-
bined output by $2m b/d, hinder-
ing the countries from meeting
the potential of their huge
hydrocarbon reserves.
Their shrinking production
has made them less powerful
within the cartel and have led
to some executives, including
Christophe de Margerie, chief
executive of France’s Total, to
predict that the world is only
about 10m b/d from the maxi-
mum it will ever be able to pro-
duce.
That might not be an issue at
the moment, as demand remains
tepid because of the downturn
in the world’s economy, but it
could again pose a serious prob-
lem when rapid economic
growth, especially in Asia and
the Middle East, resumes.
The belief that this economic
recovery will eventually happen
is one of the reasons Saudi Ara-
did in the 1970s, it can now also
weather lean times better. Vene-
zuela, Iran, Angola and others
have oil industries that are far
less diversified, leaving the
countries economically and
politically more fragile.
To be sure, Saudi Arabia has
not in the slightest hinted that
it intends to take such meas-
ures. Brushing away concerns
that Russia was now producing
more than Saudi Arabia and
benefiting from Opec’s restraint,
Mr Naimi said he was not wor-
ried. “All people are doing is
depleting their resource base
fast. Time takes care of all these
things. We are happy and con-
tent.”
His mood is a remarkable
change from the sombre and
tense atmosphere at the end of
last year and at the beginning of
2009. Whether it will stay that
way depends largely on the
world’s economic recovery.
“Economic growth is the name
of the game,” Mr Naimi said as
he left his Vienna hotel with a
broad smile this month.
A
s the impact of the glo-
bal economic crisis was
biting hard across the
Arabian Gulf, Saudi
Arabia was considered by many
to be one of the better placed
economies to handle the fallout.
It had avoided the spectacular
and damaging real estate bubble
of the United Arab Emirates
while amassing $500bn of for-
eign assets and significantly
reducing its debt.
The traditional, conservative
investment policy of the Saudi
Arabian Monetary Agency
(Sama) – which tucks the major-
ity of the nation’s surplus
wealth away in US Treasury
bills rather than equities –
appeared prescient as sovereign
wealth funds around the region
suffered heavy losses. The king-
dom also benefits from a popula-
tion of 24m that dwarfs its
neighbours and helps drive
domestic demand.
Those factors led to a consen-
sus that the kingdom’s funda-
mentals remained strong, even
if the economy was forecast to
unexpected news that two of the
kingdom’s best-known busi-
nesses Saad Group and Ahmad
Hamad Algosaibi & Brothers
(AHAB), are struggling with
financial difficulties and are
locked in a public feud that
looks set to drag on through the
courts. The saga has caused
banks to tighten further lending
to family businesses, which
dominate the non-oil sector;
raised questions about whether
other private companies are suf-
fering their own problems after
the expansive boom years; hurt
the performance of the stock
market and caused analysts to
predict that the affair’s ramifica-
tions will delay recovery.
Jarmo Kotilaine, chief econo-
mist at NCB Capital, says that
while the Saad/AHAB saga is
generally regarded as a one-off
situation, they may be repre-
sentative of broader problems in
the corporate sector because of
the lending practices of banks
and fears some companies may
have taken on too much risk.
“The reality is that this kind
now much more fragile.”
Jadwa Investment, the finan-
cial services company, forecast
that the problems at Saudi com-
Two of the kingdom’s
best­known
businesses are
struggling
with financial
difficulties
panies would shave 0.5 per cent
off real GDP growth this year
because of tighter credit condi-
tions. It predicts a contraction
of 1 per cent in 2009 with real
private sector non-oil GDP slip-
ping to a 10-year low of 2.3 per
cent this year. However, it fore-
casts a pick-up in 2010 to real
GDP growth of 4.1 per cent and,
over the mid to longer term,
economists remain relatively
positive.
The government announced
an expansionary budget last
infrastructure and hydrocar-
bons investments over the next
five years have been announced.
“The three main drivers of the
economy – oil; the government’s
programme to diversify the
economy and develop infrastruc-
ture; and demographics – are
still strong,” says Mr Kotilaine.
“As far as the medium- and
long-term outlook is concerned,
these are what we need to look
at and there are not many other
countries that can seriously
compete.” He is predicting a
return to more normal economic
environment next year, with
growth of between 2.3 per cent
and 3.6 per cent.
There are also suggestions
that steadier growth will be ben-
eficial, particularly after infla-
tion soared to double digits last
year, driven by food prices and
rental costs. That was especially
painful for Saudis who had
become used to negligible infla-
tion in the 1980s and 1990s.
“An environment of $70 a bar-
rel for oil and 3 or 4 per cent
inflation is a better environment
unveil another expansionary
budget next year and provide
strong fiscal stimulus to bolster
growth and address the needs of
a decaying infrastructure.
“The authorities didn’t suc-
cumb to populist pressure to
spend excessively and adjust the
exchange rate, so they are now
well placed with very low gov-
ernment debt and high foreign
reserves,” Mr Bourland says.
Still, there are complaints
from Saudis that they have yet
to feel the benefits of the boom
years, and the challenge of
reducing dependency on oil and
creating jobs for a growing
young population is a massive
task, particularly with the pri-
vate sector being more cautious.
“They could manage for a cou-
ple more years with government
spending, but they will have to
play it very carefully. They
don’t want to repeat the mis-
takes of the 1980s and 1990s,
when most of the job creation
was government jobs and many
were not real ones,” Mr Koti-
laine says.

Contributors
Andrew England
Chief Middle East
Correspondent Big and powerful but slow to modernise
Carola Hoyos
Chief Energy Correspondent Continued from Page 1 by the recent assassination labour, to hire young Sau- Market Authority and of the religious establish- reform and municipal elec- ers say there have been
attempt on Prince Moham- dis. There are about 6.5m former member of the ment. Yet optimism by tions – the only nationwide signs of a resurgence of the
Robin Wigglesworth
Gulf Correspondent Fransi. “There are impor- med, Prince Naif’s son. expatriate workers in the Supreme Economic Council. some that the changes vote first held in 2005 – Mutawa’a, the notorious
tant changes that have “The problem is that the kingdom. But “lots of things have would yield substantial were recently postponed for religious police, which had
Abeer Allam taken place but they need government refuses to just True, there have been been done and I think, yes, results has waned. two years. Moreover, Prince been coming under more
Riyadh Correspondent to be sustained over time. eradicate the radical rheto- some improvements. It is we are in a position now in “The problem is not Naif has previously said public scrutiny in recent
There are also those who ric and replace it with a lib- becoming more common to which we can claim that changing names – it is there was no need for years. “There is a little feel-
Heba Saleh question whether they are eral religious discourse,” see young Saudis working the potential for sustained always about changing the women – who face strict ing of Naif flexing his mus-
Cairo Correspondent happening fast enough. The says Khalid al-Dakhil, a in hotels, fast-food outlets growth is here”. mentalities,” says a Saudi segregation – to serve on cles and giving the religious
key is ensuring that they professor and political and as taxi drivers. But the Shortly before Prince lawyer. “It’s both a lack of the shura council, the con- conservatives a new lease
Stephanie Gray
Commissioning Editor [the government] take the activist. pace of change is notori- Naif’s appointment, King leadership and inefficient sultative assembly, or for of life,” says a western
Steven Bird opportunity to trickle the A priority is the need to ously glacial and the coun- Abdullah announced bureaucracy ... now the its members to be elected. observer. “The king is the
Designer wealth down.” improve the skills and work try is shackled with an inef- changes that were deemed country has opened up, Some observers also sug- king so the reform goes
Andy Mears The concern is that with- ethic of young Saudis and ficient, bloated bureauc- significant to reform. In a they can no longer say our gest that Prince Naif has ahead, but the question is
Picture Editor out social and economic diversify the economy to racy. “Look, you cannot say rare cabinet shuffle, education is the best in the been making his presence what happens after the
For advertising, contact: reforms, the pool of idle, reduce the dependence on it’s fast enough. Always staunch conservatives were world our hospitals are the felt in the social arena since king.”
Mark Carwardine disaffected youth will grow, oil. The government has you are digging for a faster ousted and replaced by best in the world [and be becoming second deputy Another Saudi says that,
+44 207 873 4880; especially at a time when also to persuade the private pace of growth,” says more moderate forces at the believed].” prime minister. In July, the as long as the oil is flowing,
mark.carwardine@ft.com Islamist militancy remains sector, which has benefited Abdulrahman al-Tuwaijri, judiciary and education On the political front, few kingdom’s only film festival there will be no political
a threat, as demonstrated from cheap imported chairman of the Capital ministries – both bastions hold out any hopes of was cancelled and observ- reform. “It is fantasy.”
FINANCIAL TIMES WEDNESDAY SEPTEMBER 23 2009 ★ 3

Saudi Arabia

Confident
and more
assertive on
world stage
DIPLOMACY prize” should peace efforts ever
produce results – with the prize
For all its claims, the coming at the end rather than
kingdom is often the start. “The US would like
the Saudis to do more and
found wanting, writes would like them to go further
Andrew England [but] it’s unrealistic – they do
not do dramatic gestures,” says
a western observer. “The mes-

W
hen Barack Obama,
the US president,
embarked on his
first official trip to
the Middle East, all the atten-
tion was focused on his historic
speech to the Muslim world that
was to be delivered in Cairo.
But, at the last minute, the
White House announced an
additional stopover ahead of
Egypt – he was to meet King
Abdullah and visit Saudi Arabia
for the first time.
After the meeting, the presi-
dent referred to the strategic
relationship between the two
nations and the fact that Mr
Obama deemed it necessary to
visit the kingdom highlighted
the role the new US administra-
tion hopes Saudi Arabia can
play in the Middle East, Afghan-
istan and Pakistan.
According to a Saudi adviser,
Mr Obama wanted King Abdul-
lah to take a pivotal role in
renewing peace efforts between
Arab states and Israel, with
Saudi Arabia leading others and
giving them “political cover” in
making so-called confidence-
building gestures to the Jewish
state.
But such a suggestion was not
something the conservative
kingdom could countenance.
Observers say any expecta-
tions that Saudi Arabia, a leader
in the Sunni Muslim world,
would be among the first to
move was a mistake. The king-
dom is often cautious to react
and is deemed to be Israel’s “big
sage to the Americans is ‘get on
with it and get the Israelis to
deliver’.”
Two months after the Obama
visit, Prince Feisal al-Saud, the
veteran foreign minister, used a
joint press conference in Wash-
ington with Hillary Clinton, his
US counterpart, to publicly criti-
cise a core element of Washing-
ton’s efforts to revive the peace
process.
“Temporary security, confi-
dence-building measures will…
not bring peace,” Prince Feisal
said.
His comments were a sign of
Saudi Arabia’s frustration with
the lack of progress with the
Arab-Israel peace process and a
deep scepticism that the Israeli
government would act on a
main Arab demand – the freez-
ing of settlement activity. His
remarks in the public arena can
also be seen as a sign of the
kingdom’s confidence as it seeks
to carve out a greater role in
regional diplomacy and be more
assertive on the international
stage.
“They [the Saudis] have
always had an important role
but always played it in harmony
with Syria and Egypt, and
whenever something moved for-
ward at an Arab League level, it
has always been when Syria,
Egypt and Saudi Arabia were in
harmony,” says a Gulf official.
“But this year has shown Saudi
Arabia come out with its own
position and show a certain
political clout that would match
Having a laugh: President Barack Obama and King Abdullah. Observers say expectations that Saudi Arabia would make a first move on the peace process was a mistake
its economic size and influ-
ence.”
The official adds that it is
“not necessarily very effective
or making many people follow
it, but it has stood its ground
and done it publicly”.
The year had started poorly
for the kingdom, with Israel’s
offensive on Gaza revealing the
depths of division within the
Arab world – no more so than
when Egypt and Saudi Arabia
became locked in dispute with
Syria and Qatar, the kingdom’s
small but maverick neighbour,
over the hosting of summits.
Gradually, though, it has
improved. A big event for the
region went the way Saudi Ara-
bia would have desperately
desired when the pro-western,
Sunni-led coalition, the March
14 movement, won Lebanon’s
hotly-contested June elections,
defeating the bloc led by Hizbol-
lah, the Shia movement backed
by Syria and Iran.
Many members of Lebanon’s
large diaspora returned to vote
and observers say Saudi petro-
dollars helped fund the return of
March 14 supporters. The
results, however, were regarded
as much as a reflection of the
disorganisation of the Hizbollah-
led coalition as March 14’s
financial strength.
Iran’s own disputed election,
and the social and political fall-
out it has created in the Islamic
republic, has given Saudi Arabia
more reason for good cheer. An
important foreign policy aim
as it has doled out billions of
dollars in aid to Sunni nations
has been to counter Iran’s influ-
ence and forge a common
‘They have a rather
weak foreign ministry
at the lower level
and are reliant on a
small number of
princes to do stuff’
Arab position against Tehran.
To Saudis, Iran’s election tur-
moil vindicated their claims
that the rival nation was facing
increasing social and economic
problems.
Yet, for all its claims of being
the world’s largest oil producer
and a regional political and
financial heavyweight, the king-
dom is often found wanting
when it comes to following up
on its initiatives.
“Their problem is they have
little capacity to follow through.
They have a rather weak foreign
ministry at the lower level and
are reliant on a small number of
princes to do stuff,” says the
western observer. “They do not
have the institutional capacity
to deliver on a lot of things.”
He cites the failure of the 2007
deal brokered in Mecca to reu-
Getty
nite Hamas and Fatah, the feud-
ing Palestinian factions, as an
example. The observer also
points out that, a decade ago,
the kingdom had little appetite
to get its hands dirty in diplo-
macy. That, however, changed
in the aftermath of the Septem-
ber 11 2001 attacks, the US-led
war on Iraq and the rise of
Iran’s influence.
“It was like that 10 years ago,
but it’s slowly changing,” says
the Saudi adviser. “We are in a
transition because the ideas are
there but there are serious
issues of managing extra capac-
ity. We are building a presence
outside; the issue comes when
we have to staff them.”
He says there is a realisation
of the need to change, but like
many other things the pace is
often glacial.

Monarchy
fearful
of change
POLITICS
Abeer Allam on
the kingdom’s
slow pace
of reform
Waleed Abu Alkhair, a
28-year-old Saudi lawyer,
has learned to ignore tele-
phone threats ordering him
to stop “defaming’’ Saudi
Arabia. Neither would he be
silenced after being beaten
up in Jeddah last month by
people he believes were
security agents on his
return from a human rights
workshop in Yemen
“We used to be the king-
dom of silence, but we will
not be intimidated any
more,” says Mr Abu
Alkhair. “We do not seek
regime change, but want an
end to government abuses.
We want ordinary Saudis to
have a say in the country’s
future, not only the royal
family.”
Mr Abu Alkhair docu-
ments abuses against Saudi
political prisoners. He was
one of 77 activists who
signed a petition in May
calling for the creation of a
constitutional monarchy
and the appointment of a
prime minister from outside
the royal family – the king
is the prime minister and
the crown prince is the first
deputy prime minister.
The hopes of people such
as Mr Abu Alkhair, how-
ever, are not about to be
realised – and the petition
was altogether ignored by
the royal family.
True, pressure for reform
intensified this decade,
boosted by the realisation
that the kingdom’s austere
brand of Islam and its
closed political system were
breeding religious extrem-
ism of the type that led to
the September 11 attacks in
the US (most of the bomb-
ers were Saudi).
But while it has taken
steps towards social and
religious reform, the monar-
chy remains fearful of any
radical change, preferring a
gradual process that it says
has helped quash a cam-
paign by al-Qaeda-affiliated
militants to destabilise the
House of Saud.
While some Saudis
denounce what they per-
ceive as cosmetic reforms,
others see important
progress – increased free-
dom of expression, more
opportunities for women
and municipal elections in
February 2005 – as substan-
tive steps.
“We have come a long
way, and we have a longer
way to go,” says Adil
Abdoh, a Saudi intellectual.
“Some people cling to
power by trying to patent
their own vision of Islam,
then fight any reform as a
deviation from the faith,
this is our main challenge.”
King Abdullah, who suc-
ceeded his late brother,
Fahd, in 2005 but has been
the de facto ruler since
1995, has built a reputation
as a social reformer but his
focus has been on religious
tolerance and conditions for
women, rather than democ-
racy.
Crown Prince Sultan, the
second in the line to the
throne and widely regarded
as pro-western, has been on
medical leave for more than
a year, leaving open ques-
tions about the future direc-
tion of the country.
In February, many
observers were thrilled by a
cabinet reshuffle in which
the king sacked the head of
the religious police and the
Supreme Judicial Council,
well-known opponents of
reforms. After increasing
the budgets for the minis-
tries of health, education,
and justice in December,
the government also
replaced the ministers with
people in favour of reform.
The reshuffle also brought
the first woman to a minis-
terial post.
Yet, in March, King
Abdullah appointed his
half-brother, Prince Naif,
the powerful interior minis-
ter, as the second deputy
prime minister, positioning
the prince as third in line.
Walid Abu Alkhai: ‘We want the end of government abuses’
Prince Naif is regarded as
an arch-conservative close
to the religious establish-
ment.
Soon after, a film festival
and summer festivities were
cancelled in Jeddah, a city
deemed relatively liberal in
comparison with Riyadh.
In May, local elections
were postponed for two
years. At the same time,
however, there have been
gestures that point in
another direction. The 77
petitioners, for instance,
may have been ignored but
the ringleaders were not
arrested, as has happened
in the past.
The government is
aware of the
influence of
young Saudis
who expect their
country to change
Some experts say label-
ling certain royals as pro-
or anti-political reform does
not reflect the political
dynamic. After all, the
House of Saud has survived
for 77 years through its abil-
ity ease or tighten its grip
on power when needed.
“There is no such thing as
reformist and reactionary
factions within the royal
family,” says one western
observer. “They all do what
they must to maintain
power, even if it means
introducing or unrolling
[political] reform when nec-
essary.”
Khaled Al-Dakhil, a pro-
fessor of sociology, says the
reform process has been so
slow that many people have
lost interest.
“The problem is there is
no wide-open support for
the idea of reform,” he says.
“Behind closed doors, eve-
ryone talks but, once they
are in charge, they abandon
their responsibility. They
do not understand that
reform is crucial, it does not
have to happen overnight,
but it has to start some-
where.”
Yet, while the govern-
ment often tries to discredit
or play down the influence
of reformists, it is aware of
the influence of young Sau-
dis who have grown up
with satellite television and
the internet and expect
their country to change.
Last month, it blocked
the Twitter accounts of Mr
Alkhair as well as Khaled
al-Nasser, a 28-year old
blogger and activist, appar-
ently after the tool was
widely used by Iranian
activists to publicise the
protests in Iran. Their com-
ments, or tweets, included
commentary on rights
issues in the country or pro-
vided links to other web-
sites such as a Human
Rights Watch report on
Saudi Arabia.
“I do not believe we
should pin our hopes on
individuals,” says Mr al-
Nasser. “We need to have a
system, a state in which we
feel protected by the law,
not protected by individu-
als, a state in which I vote
for the parliament, where I
have a job and a future. Is
that too much to ask?”
4 ★ FINANCIAL TIMES WEDNESDAY SEPTEMBER 23 2009

Saudi Arabia

Market holds up in spite of regional turbulence

REAL ESTATE dearth of jobs, the government
has been spurred to take bold
Robin Wigglesworth steps. Emaar, a Dubai-based
on insularity that has developer, has started work on
the vast, $27bn King Abdullah
spared Saudis from Economic City (KAEC) by the
property freefall Red Sea, north of Jeddah.
While it is focused on building
up steel, plastics and aluminium

T
here is no escaping a
global financial crisis
and a worldwide prop-
erty correction. Even
Saudi Arabia, relatively insu-
lated from the worst ravages of
the credit crunch, has seen real
estate prices decline.
While the country never expe-
rienced a property boom compa-
rable to that of some other Gulf
states, many Saudis invested in
property elsewhere – particu-
larly in the bellwether state of
Dubai – and poor sentiment has
infected the kingdom.
Residential property prices
have dropped about 20 per cent
in Riyadh, the capital, and 15
per cent in the commercial cen-
tre of Jeddah, while rental
prices have dipped about 5 per
cent according to Colliers Inter-
national, the consultants.
However, Saudi Arabia’s real
estate market is holding up bet-
ter than most, thanks to the rel-
atively insular economy and ris-
ing demand for housing, ana-
lysts say. “It’s a very different
market from the rest of the Gulf
countries,” says Ahmad Badr, a
real estate analyst at Credit
Suisse. “There is genuine under-
lying demand, and not just
investment demand, which has
minimised the effects of the
financial crisis. There has been
a slowdown in building, real
estate transactions, and high-
end property prices have dipped,
but the market in general is
holding up.”
Saudi Arabia’s demographics
are striking. More than half the
population is under the age of
20, but fewer than half of all
nationals own their own homes.
The cost of housing, coupled
with a lack of access to home
financing, means that many
young Saudis are stuck for
years in rented accommodation,
or forced to live with their fami-
lies.
But demand for housing – par-
ticularly affordable homes in
the big cities – is on the rise.
Thousands of young Saudis are
Home time: the cost of housing, and lack of access to financing, means that many are stuck for years in rented accommodation or forced to live with families
entering the labour force every
year, and the average size of
households is shrinking.
This means Saudi Arabia has
to build about 158,000 housing
units every year between 2010
and 2020 to satisfy the number
of people expected to enter the
residential market, according to
economists at National Com-
mercial Bank (NCB), one of the
largest Saudi lenders. This will
require an annual investment of
SR79bn, the bank’s economists
estimate.
However, while other Gulf
countries have often focused on
residential developments, Saudi
Arabia has largely concentrated
on big industrial projects. About
$100bn of projects are planned
or already under way, but only
28 per cent are in real estate,
compared with 65 per cent in
the United Arab Emirates,
according to Credit Suisse.
Experts say domestic develop-
ers have often made ambitious
announcements on residential
developments, but failed to fol-
low through. “There is a big gap
between aspiration and imple-
mentation,” says John Harris,
head of Jones Lang LaSalle’s
Saudi practice.
This is partially due to the
scarcity and cost of suitable
land. Wealthy merchant families
have generally preferred to buy
up undeveloped land in and
around the big cities, and make
money trading rather than
developing it.
“Banking of land is nearly a
national pastime, so it’s hard for
Alamy
many developers to get access
to land to build residential units
in central areas,” says Nicholas
Maclean, regional head of CB
Richard Ellis. “Saudi land own-
ers often prefer to just let the
Mindful of the social land stand undeveloped if they
problems posed by cannot do it themselves.” Nor
does Saudi Arabia boast the sta-
too little housing and a ble of capable master developers
dearth of jobs, the and contractors that have
sprung up in the UAE, experts
government has say.
Mindful of the social problems
taken bold steps posed by too little housing and a
industries, KAEC will be the
size of Washington DC and able
to house 50,000 Saudis by 2012.
KAEC is only one of four pro-
posed “economic cities”. This
year, Saudi Arabia launched
Knowledge Economic City,
which will be located by Medina
and provide housing for 150,000
residents, in addition to
research centres and schools.
Many economists and analysts
have questioned the value of the
“economic cities”, given their
cost, and whether their grandi-
ose ambitions will come to frui-
tion without other state
reforms.
The government will also
have to ensure that ordinary
Saudis, whose salaries lag those
in other Gulf states, can afford
to buy homes. A new mortgage
law that clears up off-plan
financing regulations, reposses-
sion and title registration rights
could be passed soon, and would
provide a significant boost, ana-
lysts say.
The potential mortgage mar-
ket is huge. Only 6 per cent of
financing for new houses comes
from traditional sources, such
as bank loans, while the remain-
der comes from personal sav-
ings, according to NCB.
But a new mortgage law has
been discussed for years, with
little end result, and will in any
case not prove an immediate
panacea, some experts warn. “I
don’t think it will have a radical
effect as Saudis have a cultural
aversion to debt and banks have
already been able to offer some
home financing, indirectly
through consumer loans,” says
Mr Harris.
Still, rather than acting as a
drag on the economy, the real
estate market is expected to
boom over the next few years,
driven by the country’s demo-
graphic trends and state sup-
port. After years of fitful devel-
opments: “We’re seeing a real
turning point now, and real
changes are happening,” says
Mr Badr.

Tighter rules and better

transparency welcomed
CAPITAL MARKETS
Financial watchdog
is baring its teeth,
says Robin
Wigglesworth
Being a financial watchdog
and regulator is rarely a
dull job, even at the best of
times, but Abdulrahman Al-
Tuwaijri has had a particu-
larly eventful reign at the
helm of the Saudi Arabian
Capital Markets Authority
(CMA). When he was
appointed chairman of the
CMA in 2006, the country
was in the middle of a stock
market collapse that wiped
about $500bn off the mar-
ket’s value.
“Millions of people were
chasing just a few shares,
thinking that it was a way
to get rich quickly, and it
ended in a crash – a very
painful one,” Mr Tuwaijri
recollects. “There were lit-
erally millions of Saudis
participating, housewives,
everyone.”
The crash caused uproar
among ordinary Saudis,
who blamed richer, savvier
investors and their specula-
tive and pump-and-dump
trading for the collapse, and
the authorities for failing to
protect them.
Stung by the criticism,
the CMA embarked on an
extensive regulatory over-
haul aimed at improving
the market, and has
recently emerged as one of
the region’s toughest regu-
lators. A recent clampdown
on market manipulation
has drawn praise from
bankers and analysts.
The CMA’s beginning was
inauspicious. It started
operating only in 2004, and
was initially seen to be sub-
servient to the Saudi Ara-
bian Monetary Agency, the
country’s central bank.
However, the uproar of mil-
lions of Saudis who lost
their savings in the equity
crash spurred the authori-
ties to give the CMA legal
independence, reporting
directly to King Abdullah,
and a strengthened man-
date to protect investors
and reform the market.
The challenges are con-
siderable, bankers and law-
yers say. Retail investors
dominate trading on the
Tadawul, the country’s
stock market, often buying
or selling on the basis of
the loosest of rumours.
Bands of wealthy investors
are said to club together to
manipulate share prices,
and insider trading is rife.
To improve the market,
the CMA has adopted a
multi-pronged strategy:
Increase the size and depth
of the market, ease access
for local and international
institutional investors,
improve transparency and
disclosure, and clamp down
on market abuses. The reg-
ulator has now given
licences to more than 100
financial institutions since
late 2005, among them
many of the world’s largest
investment banks.
In August last year, it
allowed foreign investors to
buy Saudi shares indirectly
through “total return
swaps” via licensed bro-
kers. Though the swaps do
not give voting rights, the
move allowed international
investors to gain direct
access to individual shares
for the first time.
Initial demand for the
swaps was limp due to the
financial crisis, but as risk
appetite improved, their
popularity has soared. The
CMA now plans to launch
exchange-traded funds by
the end of the year, and
bankers expect derivatives
Abdulrahman Al­Tuwaijri: an eventful reign at the CMA
and direct foreign owner-
ship of shares to be the next
step.
The regulator has also
recently launched an elec-
tronic market for the trad-
ing of Islamic bonds, or
sukuk. While only five secu-
rities are listed so far, and
trading is tiny, bankers
have hailed it as an impor-
tant step towards develop-
ing a debt capital market in
Saudi Arabia.
A recent crackdown on
market abuses has been
equally eye-catching. The
CMA has closed 186
rumour-peddling websites,
Bands of wealthy
investors are said
to club together
to manipulate
share prices
and several important Sau-
dis trading on insider infor-
mation have been publicly
named, fined and, in at
least once case, jailed.
In June, the watchdog
fined Mohammed bin Ibra-
him al-Issa, one of the larg-
est individual investors on
the Tadawul, for allegedly
using his position as a
board member to gain
insider information and
trade in the company’s
shares. “He is one of the
tycoons, one of the largest
investors in our market. It’s
Reuters
unfortunate but we had to
do it,” says Mr Tuwaijri.
“There are no untoucha-
bles.”
Mr Issa denied the charge
of insider trading, but the
CMA banned him from
working for a listed com-
pany for three years, and
ordered him to pay the
CMA the SR3.4m profit he
made from trading.
“The culture usually does
not allow you to mention
names, and until recently a
lot of it has been kept
behind closed doors, but
now they are making it a
point to announce names,”
says Omar Jaroudi, the
Saudi head of Shuaa Capi-
tal, a Dubai-based invest-
ment bank.
The CMA still has a long
way to go. The Tadawul suf-
fered another severe decline
when the financial crisis
struck last autumn, retail
investors still dominate
trading, and market abuses
carry on unabated, some
say.
“We have gangs of major
investors who control the
markets. Insider trading
and market manipulation is
still continuing, despite the
recent fines,” says
Abdulaziz Al-Bosaily a
Saudi lawyer and a member
of Clyde & Co’s Middle East
corporate finance team.
The CMA can also be
slow and bureaucratic,
some bankers and lawyers
privately admit. The rule
work on initial public offer-
ings is improving, but IPOs
are still primarily aimed at
distributing wealth, and
pander to retail investors,
and a further liberalisation
of access for foreigners is
likely to be cautious and
measured.
More recently, a spat
between the Tadawul and
MSCI Barra has disap-
pointed fund managers.
MSCI Barra has had to take
the largest regional stock
market out of its Arabic
and Gulf indices after the
Saudi stock market
demanded payment for pro-
viding its data.
However, the tentative
steps in opening markets
are encouraging ones in the
Arab world’s largest econ-
omy.
FINANCIAL TIMES WEDNESDAY SEPTEMBER 23 2009 ★ 5

Saudi Arabia

Where life A deeply uneven

depends on pace of change
the mood EDUCATION

Grand visions often

stumble in face of
alternative agendas,
Saudis for the local job mar-
ket.
“The education does not
match the skills we need in
the job market,” says
team appointed by King
Abdullah to the ministry of
education in February,
including his son-in-law.
This group, say analysts,

of the men
Ahmed Sindi, CEO of Eti- could more powerfully chal-
says Abeer Allam had Atheeb Telecom. “We
need better engineers who
lenge the conservative
establishment’s influence
can speak English and solve on education.
A popular television com- problems creatively.” The government is allo-
edy in Saudi Arabia, Tash Saudi engineering gradu- cating huge resources for
Ma Tash, touched a nerve ates provide only a fifth of education across all sectors.
WOMEN influential clerical estab- recently with an episode the country’s needs, with Last December it
lishment and others in this that satirised clerical con- the remainder expatriates. announced its biggest
Heba Saleh finds deeply conservative society. trol over education, show- To improve skills, King budget ever, pledging to
slight movement in A combination of religion
and tribal traditions make
ing religious figures
denouncing reforms as a
Abdullah has established
scholarship programmes to
spend SR475bn this year on
infrastructure, health, and
the centuries­old many Saudis deeply suspi- western plot rather than a send thousands of Saudi education, compared with
traditions cious of anything likely to
threaten men’s control over
national priority.
Conservatives decried the
students abroad on full
scholarships.
SR410bn for 2008. The king
also pledged last year to
the lives of the females in show. Its writer even As part of plans for a five- spend SR20bn to create the

W
ajeha Al
Huwaider, a Saudi women are not
d i v o r c e d
mother from
eastern Saudi Arabia, does
not believe she should have
to seek the permission of a
male relative before she
travels out of the kingdom.
To make her point, the
47-year-old, who works in
the training department of
a big Saudi company, has
been turning up repeatedly
at the border with Bahrain,
trying to leave the country
without signed authorisa-
tion from a male guardian.
Predictably, she has been
stopped.
“I told them I want to
break the law,” she says.
“The last time I asked the
[border officials] to take me
to their boss, and I insisted
he should allow me to
leave. He refused, so I sat in
his office for three or four
hours. Either they treat
women as mature citizens
or they should just let us
leave the country.”
Women’s place in society
and the extent to which
they should be allowed to
control their destinies
remain deeply contentious
questions in Saudi Arabia.
They are at the core of the
debate between liberals and
conservatives unleashed in
2001 after the September 11
attacks in the US, mainly
by Saudi nationals. The
their families.
allowed to drive, and in
public they have to be
totally enveloped in a black
cloak. Although women are
permitted to work, many
professions are closed to
them. Employers have to
provide separate premises
for women workers. Under
Saudi Arabia’s interpreta-
tion of Islam, women are
not allowed to mix with
men who are not relatives
because it might lead to
“sinful behaviour”. The ban
on driving is to prevent
opportunities for sinful mix-
ing arising.
Another restriction is the
irksome system of guardi-
anship against which Ms
Huwaider has been rebel-
ling. A Saudi woman can-
not work, travel, marry,
study or gain access to
healthcare without male
authorisation. Even a them more rights. This
16-year-old boy is entitled to
act as a guardian for his
mother.
“A woman’s life depends
on the mood of the men in
her family,” says Ms
Huwaider.
‘If we have to wait
for our people to
be [converted to
more liberal
Shrouded: women are denied rights that are taken for granted in other Muslim societies
progress, even if this has
been slow. King Abdullah
has signalled repeatedly a
willingness to enhance the
role of women and allow
year, he appointed the first
female deputy minister,
Noura Al-Fayez, who has
been placed in charge of a
new department for girls’
education. A new co-educa-
tional university is being
built.
Domestic violence is no
longer taboo to discuss, con-
tinuing to receive attention
from the media and the
authorities.
A royal decree issued in
2005 established the
manded by judges for fail-
ing in their duty of respect
to their husbands or
fathers. Their cases are fre-
quently dismissed.
Conservatives have also
been angered by the
increasing presence of
women in the media.
Women’s photographs
appear in newspapers and
female presenters read the
news on television and con-
duct interviews.
The appointment of a new
information minister earlier
this year prompted 35 cler-
ics to sign a statement call-
ing for a change in policy
and saying that the state
was failing to enforce its
Getty
consensus even at the top
on how much change
should be allowed.
Prince Nayef, the interior
minister, who is third in
line to the throne, said this
year that he sees no need
for women members of the
appointed shura council,
which advises the king and
is supposed to provide a
minimum of representation.
Activists such as Ms
Huwaider blame the state
for failing to show stronger
leadership.
“If we have to wait for
our people to be [converted
to more liberal attitudes]
we will wait for centuries.”
received death threats. Yet
many ordinary Saudis
cheered what they saw as
an honest reflection.
“My mother cheered and
clapped the whole time,”
says Mashael Abdel Rah-
man, a public relations pro-
fessional. “It is ridiculous
that they [the clerics] still
control all aspects of educa-
tion in this day and age,
hiring their own people and
rejecting all others.”
Both the judiciary and
the education system have
long been dominated by
religious authorities. West-
ern observers, after the Sep-
tember 11 attacks on the
US, criticised the system for
promoting religious extrem-
ism. Saudi reformists
shared the sentiment and
pushed for updating the syl-
labus.
Yet efforts to edit the
textbooks failed to achieve
the desired effect since
teachers and others sup-
porting them asserted that
criticising the education
system was tantamount to
criticising Islam.
Saudi students scored
45th out of the 48 countries
in the Trends in Inter-
national Mathematics and
Science Study for eighth
grade students in 2007, and
business executives com-
plain that the education
system does not prepare
year, $30bn effort to
upgrade its science and
engineering capabilities,
Primary and
secondary reform
is limited and the
focus remains on
religious studies
Saudi Arabia also is set to
open today the $2.6bn King
Abdullah University of Sci-
ence and Technology
(Kaust).
Backed by a $10bn endow-
ment, Kaust wants to
become an independent
research centre that, in
partnership with other
international universities,
will bring top-quality teach-
ers to its campus north of
Jeddah and create a centre
of scientific research, inven-
tion and education. Most
radical of all are proposals
for men and women to
study together on the same
campus. Twelve more uni-
versities and colleges are
planned within the next
four years.
But primary and second-
ary education reform is still
limited and the focus
remains heavily on reli-
gious studies. Analysts see
hope, however, in the new
world’s largest women-only
university in Riyadh.
But grand visions of edu-
cation reform often stumble
in the face of alternative
agendas and, in Saudi Ara-
bia, where all instruction
for girls was until 2006
supervised by religious
authorities, the pace of
change has been uneven.
In the February reshuffle,
a woman was for the first
time appointed as deputy
minister for girl’s educa-
tion. But Nour Fayez has
been reassuring Saudis
that, as a true “Najdi”, or
person from the conserva-
tive central region of, she
would never reveal her face
in public or in a newspaper
and would not allow girls to
play sports at school.
It is this uneven pace that
leaves some Saudis deeply
sceptical of the ability to
reform. “The whole thing
about the government want-
ing change and clerics resist-
ing it is nonsense,” says Ali
Al-Ahmed, a Washington-
based Saudi dissident.
“If they want something
done with the religious
authorities, they do what
they did in 1990 when King
Fahd wanted American
troops to defend the coun-
try: he picked up the phone
and ordered the mufti to
issue the fatwa [religious
edict].”

attacks shocked Saudi soci-
ety and placed its strict
interpretation of Islam and
its social traditions under a
critical spotlight both
domestically and interna-
tionally.
Emboldened by the post
9/11 atmosphere, in which
conservatism appeared to
be on the defensive, liberals
have been pushing for a
loosening of restrictions
that deny women rights
taken for granted in other
Muslim societies. Their
attempts have alarmed the
attitudes] we will
wait for centuries’
“There are no laws to pro-
tect women. If you are
lucky, you will be born into
a family which helps you
achieve your dreams. But it
would still be temporary
because your guardian can
withdraw his permission
any time and would lose
you your job.”
But she also acknowl-
edges that the past few
years have brought some
National Family Safety pro-
gramme, and family courts
and shelters for abused
women have been opened.
It is no longer necessary for
a woman to have a guard-
ian’s approval to check into
a hotel – something that
potentially provides an
immediate avenue of escape
for a battered woman.
But again, these changes
are meeting with resistance
from conservatives.
Women who go to court
to complain about abusive
guardians are often repri-
own laws.
“[Saudi laws] prohibit
showing women dancing
singing or making news
broadcasts, whether in Ara-
bic or in a foreign language
and ban any Saudi women
from appearing on televi-
sion under all circum-
stance,” said the statement.
Such resistance is slowing
change, and officials argue
that the state has to be
mindful of the feelings of
the big conservative constit-
uency in society.
It is also clear there is no

Locals remain to be convinced

of need to get their hands dirty
EMPLOYMENT
Abeer Allam on
the skills shortage
that Saudisation
policy has yet to
resolve
Ghazi al-Gosaibi, Saudi Ara-
bia’s labour minister, was
not supplementing his sal-
ary when he donned a
green apron to sell olives
and cheese at a grocery
store or a McDonald’s uni-
form to serve up hamburg-
ers. Rather, the goal was to
demonstrate to young Sau-
dis that such jobs are not
beneath them.
“Government jobs won’t
fall from the sky any time
soon,” said Mr al-Gosaibi at
an event in June to honour
Saudi Arabia’s McDonald’s
workers. “I am proud of you
for not just sitting at home
waiting for a government
job. For those who are still
waiting, you may be wait-
ing for ever, so you’d best
start somewhere.”
Meanwhile, Saudi Ara-
bia’s mufti fielded questions
at a vocational training
course about the merits of
manual labour in Islam. In
response to one young
man’s complaint, he
declared that there is no
stigma attached to working
as a carpenter or a barber.
The campaign by govern-
ment and religious authori-
ties to convince young Sau-
dis to accept menial work
reflects unusual pressures.
The official unemploy-
ment rate has remained at
roughly 10 per cent, down
from 11 per cent in 2006.
But nearly two-thirds of
Saudi nationals are under
25 years old, and the oldest
members of this cohort are
entering a job market that
offers few of the govern-
ment and management
posts on which Saudis
could depend, even a decade
ago.
As much as 46.3 per cent
of the jobless Saudis are 20
to 24 years old, which many
see as a recipe for trouble.
The assassination attempt
against Prince Mohammed
bin Naif, the deputy interior
minister, by a 23-year-old
man last month serves as a
chilling reminder that al-
Qaeda-affiliated groups are
still looking for young
Saudi recruits.
Yet the kingdom main-
tains a workforce of
roughly 6.5m foreign
labourers, the largest such
workforce in the region.
The government has been
trying to change this situa-
tion for more than 10 years
as part of a “Saudisation”
strategy that specifies that
75 per cent of the workers
in any company must be
nationals. But starting quo-
tas range from 5 per cent
for certain infrastructure
works or 20 to 30 per cent in
other businesses. In addi-
tion to legal mandates, and
increasing the time and
cost of obtaining work
visas, the government
offers subsidies for training
and other incentives to hire
Saudis, including payment
of up to half a first year’s
salary.
The ultimate effect of
such policies remains
uncertain. “It becomes
really tricky when an inves-
tor who is bidding for a gov-
ernment contract for a tech-
nical job finds himself
obliged to have 30 per cent
of his 20-person staff as Sau-
dis,” says Abdulaziz al-
Bosaily, partner in Clyde &
Co law firm.
Since the oil boom of the
1970s, many Saudis have
developed a sense of entitle-
ment, assuming that, by
virtue of their nationality,
they could hold government
posts or jobs as managers
in companies.
At the same time, busi-
nesses hire Saudis only
reluctantly. If they can
obtain the work visas, they
can hire two foreign work-
ers to do the same work as
one Saudi for one-third of
the salary.
Many employers cite the
education system as an
Many either assign
a certain number of
Saudis to positions
with minimal
responsibility, or
create useless work
important factor, complain-
ing that Saudi graduates
lack market skills and
refuse to start at the bot-
tom.
“Most of the population is
young, so creating jobs is
an economic imperative,”
says John Sfakianakis, chief
economist for Banque Saudi
Fransi. “But the private sec-
tor cannot expect Saudis to
accept salaries of SR1,500 a
month, while young Saudis
have to quit thinking that
they can start out as man-
agers, even without any
experience.”
There are other advan-
tages to hiring foreigners. If
a manager violates the
rights of a Saudi worker, he
can be held liable to pay
additional wages; but, for a
foreigner, such payments
are minimal, and might be
avoided simply by repatriat-
ing the worker.
To bypass the Saudisation
quota, many employers
either assign a certain
number of Saudi managers
to positions with minimal
actual responsibility, or cre-
ate useless work, such as a
printing department for
instance, and hire all Sau-
dis there, thus depriving
them from gaining any
actual experience. “Bengali
workers have families back
home to feed, so I can
depend on them,” says a
manager at a construction
company. “A Saudi knows
he cannot get fired no mat-
ter what.”
A recent report by the
independent Human
Resources Development
Fund found that the policy
is failing to help Saudis find
jobs. The study found that
immigration regulations,
education and the low pro-
ductivity of Saudi workers
are obstacles in the way of
recruiting Saudis.
Yet private companies
continue to look with cau-
tion at the sorts of invest-
ments that will create the
most jobs. Mr al-Gosaibi
warned private companies
in January against “exploit-
ing” the economic crisis as
a pretext to terminate jobs
for locals, several of whom
recovered their positions
after bringing wrongful ter-
mination claims. “If you
want the Saudisation policy
to succeed, then you have
to start with education,”
says Mr Bosaili.